The recent sale of Vietti to American investor Kyle Krause is
one of the most shocking events I have seen in twenty years of visiting
Piedmont and nearly thirty years of buying and drinking Vietti wines. For
decades, Vietti has marketed itself as the standard bearer of artisan Piedmontese
values – multi-generational family ownership, tradition and an attachment to
the land. The question is: What does Vietti, and more broadly, Piedmont, stand
for today?

For decades, wine lovers have been fascinated by the Langhe
because, like Burgundy, it is one of the few regions in the world where wines
are made by growers operating artisan estates that have been in their families
for generations. The link with the land, the connection to the producer and the
underlying humanity of the wines is precisely what makes them so special. When
that connection no longer exists, the wines are less unique from what is
available elsewhere. It’s as simple as that. To be honest, at times I am not
sure the Piedmontese themselves fully understand or appreciate what they have.

A Little Background

Vietti traces its history back to the late 1800s, but the
modern-day era begins in 1960, when Luciana Vietti and her husband Alfredo Currado
(who she married in 1957) took over the family domaine. The Currados had three
children; Luca, Emanuela and Elisabetta. Luca Currado is the current CEO and
winemaker. Daughter Emanuela married Mario Cordero, who heads up marketing, while
Elisabetta is not involved in the business. When Luciana Vietti and Alfredo
Currado retired in 2000, Luca Currado and Mario Cordero bought the business,
which they have continued to operate with the help of Luca’s wife, Elena, and
other family members and staff. Earlier this month, Currado and Cordero
announced that they had sold Vietti, along with all of the estate’s vineyards
and the historic cellar in Castiglione Falletto, to American businessman Kyle
Krause. A long time Barolo lover and Italophile with Sicilian roots, Krause tried
unsuccessfully to purchase the Arione vineyard in Serralunga before buying the
Enrico Serafino winery from Campari last year.

The sudden sale of Vietti, after what appears to have been a
very quick courtship, continues to send shockwaves through the wine world. It
was long believed that Piedmontese farmers and producers would never sell to
outsiders because the locals are famously inward and any such sale would be
viewed negatively. Well, today’s generation of Piedmontese owners is much more
global in outlook. The Vietti sale will surely open the doors to more similar
transactions. Right now, Russian oligarchs, French luxury goods firms, Asian
investors and American conglomerates are among the many suitors knocking on
doors looking for wineries to buy in Piedmont. And producers? They are thrilled
with the news. Property values continue to go up and increased foreign
investment will create more avenues for further exits at higher valuations in
the future.

The Deal

Let me be clear: I am not against foreign investment in Piedmont. Far from it. There are several wineries that really should be sold because the owners are older, have health issues, don’t have heirs and/or are severely undercapitalized. None of these factors seem to apply to Vietti. Only the Currado and Cordero families know
their reasons for selling. Ultimately, their decision needs to be
respected, even if it is unprecedented in nature. The sale of the vineyards is
especially of note considering that Alfredo and Luciana Currado toiled for
decades to rebuild the family holdings that previous generations had lost. Piedmont
is often compared to Burgundy, but it’s hard to imagine a historic Burgundian
family selling a world-class winery and all of their vineyards to an outside
investor. Leaving aside exceptional circumstances like Domaine René Engel (today Domaine d’Eugénie)
this has not happened yet, although growers in Burgundy have to deal with their
own challenges, the most important of which are Draconian inheritance laws that
are a continual strain on families.

What I can tell you is what I am seeing all over Italy. I
say that because, as much as I find the Vietti sale a huge disappointment,
ultimately Vietti is a symptom of a far more serious cancer that threatens to
destroy family run wineries. Specifically, people are tired of fighting against
an increasingly bureaucratic environment. I lived and worked in Italy fifteen
years ago. It was hard then, but it is much harder now. Making wine is tough work. It is a constant struggle against the whims of
nature. And selling wine is even more challenging than making it.

As I have written here before, generational succession is one of the greatest dangers to the future of Piedmont’s artisan estates. All too often, today’s younger generation want to wear the
latest in haute couture, drive nice
cars and travel the world first class. They have no idea what it means to prune
a vine, rack barrels, go to sleep at night during harvest with the sound of
rain on the roof or fight to make ends meet. The struggles of their parents and
grandparents are largely fading memories.

To be fair, this is not an unusual situation in society at
large, but wealth and economic prosperity are relatively new to many wine
producing regions. Piedmont is one of them. Over the last thirty years, the wine
business has transformed from an industry of semi-lifestyle, family-run
companies to a global industry that attracts increasingly huge capital. Growers
are good at farming and making wine, but very few of them are prepared, or
perhaps even interested in, acquiring the business skills that are essential
for survival today. For example, one of the things that needs to happen in family owned wineries
is a greater separation between ownership and control, as is common in other
businesses.

Lastly, as property prices and estate valuations soar,
families are often ripped apart by differing priorities for the future. I don’t
know to what extent, if any, these factors played a role here, but you can be
sure there are a number of estates in Piedmont, some of them very high in
profile, that are going to be sold in the near future for these exact reasons.

Luca Currado and Mario Cordero, both of them savvy, are
convinced this move is the best decision they could have made for the winery’s
future. Aside from being a highly successful businessman, Kyle Krause is
passionate, charming and driven. He also clearly has the means to pursue his
vision. Krause told me he hopes both Currado and Cordero will work the rest of
their careers at Vietti. Cordero is close to retirement age as it is, but
Currado is only in his mid-40s, so that is a long ways out. Currado intends to
use the best of the Enrico Serafino vineyards to boost the Perbacco and Barolo
Castiglione bottlings. Although there is always room for improvement in
anything, the reality is that those wines are already among the very best in
their respective categories. How much better can they be?

Currado adds that there may be new vineyard-designates in
the winery’s future. That is an intriguing proposition. In addition to the
vineyards that inform the Barolo designates, Vietti also vinifies (or has
vinified in the recent past) fruit from a number of sites that many producers
bottle separately, including Bricco Fiasco, Ciabot Berton, Fossati, Ravera di
Monforte, Bricco Boschis, Ginestra, Mosconi, Liste, Brunella and Pernanno, all for
their Nebbiolo Perbacco and Barolo Castiglione. Who wouldn’t like to see a
Barolo Mosconi, Ginestra, Bricco Fiasco or Scarrone from Vietti? Over the
years, I have had a chance to taste numerous wines from barrel that ultimately end
up in the Perbacco and Barolo Castiglione blends. When I have asked Currado why
some of these parcels aren’t bottled separately the answer has always been the
same: the sites are not consistent enough from year to year to merit vineyard
designated bottlings. It will be interesting to see if anything changes in that
view going forward.

Luca Currado insists that in the face of spiraling land
costs, Vietti needed to solidify their estate holdings, which required a
significant amount of new capital. That is certainly understandable. But the
winery could have sought a partner to fund new vineyard purchases (as several
high profile domaines have done recently in Burgundy), or taken on a minority partner
for the entire business. Selling everything to an investor is an extreme,
unprecedented step.

Mario Cordero cites Châteaux Margaux and Louis Jadot as
role model wineries. Neither has anything to do with Vietti, but the intent is
clear. Today, Vietti is a high-quality winery with massive commercial
aspirations that is entirely owned by an outside investor. That does not mean
quality will drop or that the wines will change, but the sense of purpose and
the historical narrative at Vietti have most certainly changed.

One of the most troubling aspects of the sale is that
Currado and Cordero have retained no equity at all. The signal that sends is
that the sellers want to be completely out of the business and/or do not
believe their company will be worth more in the future than it is today. Of
course, different people are motivated by different things, but the change from
owner to employee with no future upside is perplexing. Typically in a scenario
like this one, senior management retains some ownership, which serves to align
interests.

So, why would Vietti, one of the bastions of tradition in
Piedmont, sell everything? Distress of some sort? I doubt it, and I hope not.
As always, in family operated businesses, ownership is divided among several people. Perhaps there were differing views on how to manage the future. More
likely, though, the purchase price was a very big number, perhaps in excess of
the €50m
($55m) figure that was reported in the Italian press last week. Looking at
recent transactions such as François Pinault’s Artemis Group’s purchase
of Araujo Estate in 2013 as a comparable, I would not be surprised if the
number for Vietti was quite a bit higher than what has been reported. Obviously,
at these levels, prices are not really driven by land values or case
productions, but rather by perceived brand value, the potential for synergies,
and, ultimately, how much the buyer is willing to pay.

As for the Currado and Cordero families, their new reality
is inescapable. Once owners of one of Piedmont’s most revered, historic estates
and plots in some of Piedmont's most pedigreed vineyards, they have now joined the ranks of Krause’s approximately
4,000 employees. I can only hope they got a very big check.

The Bordeauxification
of Piedmont?

It is hardly a secret that land prices have been on the rise
in Piedmont. This rapid appreciation has made top quality vineyards virtually
unaffordable for all but the wealthiest of families. At some point, it is
likely vineyards will essentially be out of reach for the locals. This phenomenon is at times been referred to
the “Burgundization of Piedmont” but in reality the same situation applies to
all regions around the world where high quality wines are made.

In Burgundy, growers have reacted by taking on financial
partners who buy vineyards that the growers then farm. Some domaines have
minority partners. It is important to note that while there is an increase of
outside investor capital in Burgundy, the region is also home to growers who
have fought to rebuild their family holdings. Frédéric Mugnier and Louis-Michel
Liger-Belair come to mind. Listen to either of them talk about their family
histories and the land that previous generations lost for various reasons and
it is clear those events remain deep and open wounds. The land is everything.

What has happened at Vietti has nothing to do with Burgundy
whatsoever. An attempt to draw that comparison is simply designed to retain an
artisan image with the public. If Vietti simply needed capital to finance
expansion and/or acquisitions they could have gotten it from any number of
sources, but the family ultimately chose a different path. The new Vietti model
is actually very similar to what we have seen in Bordeaux where owners sold but
stayed on as managers at properties such as Haut-Brion and Haut-Bailly, both of
which are at the very top of the quality ladder.

What About the Future?

Simply put, Luca Currado is Vietti. I am
often asked why Vietti has been so successful in marketing their wines and
placing them in all the top restaurants in the US. The answer is simple. No one
has hit the road with a greater sense of purpose than Currado, who travels a
good 6-7 months a year, while his wife, Elena, keeps her own busy schedule of
marketing commitments, just as Alfredo Currado and Luciana Vietti did before
them. Consumers and the trade buy the wines because they are reliably
outstanding and because Currado is an immensely likable, charming producer who
has taken the time to cultivate deep relationships with influencers and thought
leaders at all levels of the business. Will Currado want to spend that much
time on the road as an employee?

Hopefully Krause has taken out a big key man insurance
policy on Currado and tied him down to a long-term contract. By long-term, I
mean at least ten years. Consider that the Barolos Currado makes this year, in
2016, will be released only in 2020, so, if, for example, Currado has a three-year
deal, he could be gone before the 2016s are even released. Nebbiolo is a very
hard grape to farm and vinify. The number of vintages it takes to go from
world-class to mediocre is exactly one. Bruno Giacosa and Domenico Clerico are
case studies. It is inconceivable that Krause would risk his investments in
Piedmont by not having secured the future.

I have little doubt the quality of Vietti wines will
continue to be high. Over the last decade, few producers in Piedmont have
achieved a level of consistent brilliance on a par with Vietti. Of course, a
number of recent vintages have been absolutely stellar including 2004, 2005,
2006, 2007, 2008 and 2010, but it is Vietti’s showing in more challenging years
such as 2009, 2011 and 2012 that speaks volumes about Luca Currado and his
team. Additionally, Currado will have a huge chip on his shoulder to show he
can deliver superb quality under the new ownership structure. Ultimately, the
wines will speak for themselves. We will
soon start to see the results, because Currado will begin making wine from all
the Krause sites this year.

The one area where Vietti could look more like a Burgundian
domaine in the future is in its range of wines. Over the last few years, Kyle
Krause has shown an admirable determination to get what he wants. Yes, he lost
out on Arione, but only because he ran into the only person in Piedmont who
could have competed for that specific piece of land. He likely won’t face that
obstacle again. Ultimately, investors want to make a return. I can very much
envision a future where the Perbacco is Vietti’s ‘Bourgogne rouge,’ the Barolo
Castiglione is the ‘villages’ and a portfolio of ten or more single-vineyard
Barolos form the core of the range. Piedmont has never been able to combine scale
with quality, but Krause has the means and team to make it happen. One of the
big advantages Piedmont has over Burgundy is that production for single wines
is much higher. At that point, the biggest issue will be selling the wines, but
Krause can take care of that too. He then could take the bulked up Vietti
business, market it globally and then sell it to a big conglomerate for a
multiple of the original purchase price. It’s not a far-fetched scenario.

Looking Ahead

Anyone who tells you nothing has changed is delusional.
Everything has changed. Forever. This sale opens the door for further
acquisitions, which will in turn drive up land prices further and ultimately
make wines more expensive, all while widening the gap between truly artisan,
family-owned wineries and more corporate estates with deep pockets. Of course,
some of the region’s newfound prosperity could be a positive, if handled
properly.